matter in the AGM, for paucity of time and communicated to J about his appointment, who in turn accepted the appointment.

matter in the AGM, for paucity of time and communicated to J about his appointment, who in turn accepted the appointment.
K.€~plaining the provisions of the Companies Act, 1956 decide:
(j)1 Whether the appointment of J is in order?
YiijJWhat course of action would you take as the Secretary of the company in case
J does not have substantial interest? [C.A. (Final) Nov., 1997J
Ylns. As per Section 294, a company having a paid-up share capital of Rs. 50 lakhs or more, cannot appoint a sole-selling agent without:
(i) the consent of the members by way of special resolution, and
(ii) the approval of the Central Government.
Further, where the appointee has a substantial interest in the company, the
approval of the Central Government shall be the prior approval [Sec. 294 AA(2)].
Thus, in view of the above provisions:
(i) appointment of J is not in order; and
(ii) the answer would be different in as much as the approvals required being not
prior approval, the same may now be obtained (i.e., special resolution may be
passed and approval of the Central Govt. obtained).
It may be noted that the Institute's answer lacks specificity; it gives information not
warranted by the question and answer to (ii) does not seem to have been correctly worded.

P. 5. On scrutiny of the sole selling agency agreement of HIJ Company Ltd. with X, the Central Government finds that the agreement is prejudicial to the interest of the company and cancels it.
X consults you as to the advisability of challenging the order of the Central Government. Please advise X as to the chances of his successfully challenging the
order of the Central Government. [CA. (Final) Nov., 1998J
Ylns. In Nanavati & Co. (Pvt). Ltd., Vs. R.c. Dutt [(1975) 45 CC 91], the Bombay High Court has categorically laid down that any position taken under sub-section 5 of section 294 should be guided by the principles of natural justice. When the Central Government makes an order varying the terms of a sole selling agent, the affected sole selling agent must be given an opportunity of being heard before making any order prejudicial to him, even though the order may be only an administrative order. Further, the power under Section 294 (5) is only to "make variations in the terms and conditions" and not to cancel the agreement. Hence, X may be advised that the order of the Central Government can be successfully challenged on two grounds thereof:
(a) no opportunity to be heard was given;
(b) the order does not merely vary the terms but cancels the entire agreement.